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Chile

Last Verified on Thursday 9th March 2017

    • Chile

      There are no data; however, many acquisitions of sizeable amounts are made with financing provided by banks, on a structure that is usually a take out. In the meantime the shares of the company being acquired are pledged for the benefit of creditors.

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      There has been and increasing banking participation by domestic and foreign institutions in acquisitions linked to various areas of the Chilean economy.

      Even though largest transactions are usually financed by foreign banks, local banks have been able to manage complex and relevant M&A transactions. With the increase of local banking participation, Chilean law is used (and the documentation thereunder has become more sophisticated. 

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      Acquisitions from local sellers by local buyers are mostly made in Chilean currency. When the buyer or seller is a foreign party, then the US dollar is the currency of the loan. 

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      The maturities tend to medium term (three to five years), but when there is a takeout financing contemplated in the transaction the maturity may be up to 18 months, followed by long-term refinancing or placement of debt securities, to repay the acquisition financing lenders.

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      The requirements vary according to the type and location of the investor or lender. In Chile, the foreign investment is regulated by local rules and those international agreements to which the country has subscribed. Local laws currently include the Foreign Investment Act, contained in Decree Law 600, although it will not be possible to subscribe new ‘foreign investment agreements’ under this law as from 2016, since this regime has been eliminated by Law No 20,780. However, the Chilean Congress is currently discussing replacing mechanisms and the Central Bank Regulations, in particular, Chapter XIV of the Compendium of Foreign Exchange Regulations of the Central Bank of Chile.

      In addition, foreign investment is subject to the rules contained in bilateral investment treaties between Chile and other nations. These mechanisms, which include dispute settlement frameworks, provide additional protection for foreign investors in Chile.

      Generically speaking, under Chilean law there are currently no limitations placed on a foreign investor purchasing a Chilean company. Foreign companies and individuals are generally free to invest in all productive activities and sectors of the economy. However, the Chilean government may impose restrictions in relation to the purchase of businesses by foreigners in certain areas, such as coastal trade, media, fishing and real estate in border zones.

      Certain economic activities considered relevant to national security (for example the exploration and exploitation of hydrocarbon deposits in coastal waters under national jurisdiction or in areas classified as important to national security or the production of nuclear energy) may generally only be undertaken directly by the Chilean government or public (state-owned) corporations. However, in certain circumstances, foreign companies may invest in these areas also.

      Foreign investors register their investments in order to ensure the right to repatriate their capital and profits in a currency other than Chilean Pesos. In general, there are two ways in which a foreign investor may register his or her investment in Chile: under the Foreign Investment Act, or under Chapter XIV. Investors will typically register their small investments under Chapter XIV, while larger investments will be typically registered under the Foreign Investment Act, which is a longer and more formal procedure, which ultimately provides better security and more legal certainty for investors and which, as already pointed out, will maintain its applicability until 1 January 2016.

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      Under general rules, withholding tax on interest originating in loans from non-residents and in bonds held by non-residents is 35 per cent. A preferential 4 per cent rate applies on interest originating in loans granted by non-resident banks and qualified financial institutions. 

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      Yes, in general it is possible to contract under a foreign law. However, under applicable Chilean law, for an agreement to be governed by foreign law it is required for such agreement to have an outstanding international element, such as a foreign party or obligations that need to be fulfilled abroad.

      A contract that is validly subject to and governed by the laws of a foreign jurisdiction will be generally immune from the otherwise implied terms of Chilean contract law and other applicable laws.

      However, when enforcing in Chile a contract governed by a foreign law, or a foreign judgment based thereon, the local courts will apply to the contract or judgment, as the case may be, certain Chilean mandatory laws. Such mandatory laws include laws that are deemed to be part of what pertains to the public policy of Chile, and any contract provisions that contradict such principles of public policy (such as excessive damages awards, disclaimers of liability for gross negligence or willful misconduct, lack of personal service of process, etc) will be superseded by the relevant provisions of Chilean law that will so be implied and enforced by the local courts.

      In addition, local courts will not enforce any foreign law chosen by the parties as the governing law of their agreement with respect to the ownership and disposition of property located in Chile.

      With respect to Chilean government and state-owned companies, Decree Law No. 2,349 of 1978 of the Finance Ministry expressly allows those entities to submit international financial or economic agreements to foreign law.

      As per dispute resolution, a final, valid and conclusive judgment, rendered by a foreign court having jurisdiction, under its laws, in an action arising out an agreement subject to a foreign jurisdiction, would be recognised and enforced against the Chilean party by the courts of Chile, without re-examination or review of the merits of the cause of action in respect of which the original judgment was given nor re-litigation of the matters adjudicated; provided that the judgment is presented to the Chilean Supreme Court, in duly legalised form and translated, and that the conditions set forth in the Chilean Procedure Code are met, which would be determined by the Supreme Court of Chile in accordance with the procedure contemplated by such for the enforcement of foreign judgments (exequatur).

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      No, unsecured creditors can only be paid after creditors who enjoy a statutory priority are paid. Indeed, in case of insolvency, Chilean law provides that the debtor’s funds available to pay the creditors must be used in accordance with the applicable statutory priorities, which comprise five “categories” of claims specifically listed in the Chilean Civil Code that are summarised below. Nevertheless, creditors of the fifth category (see below) are treated on a pari passu basis, unless they agree to subordinate their credits and therefore become junior to all other unsecured creditors in case of a general subordination or to specific unsecured creditors in case of a limited or restricted subordination. No other claims will be given recognition in Chile nor will any priority in any other jurisdiction be recognised in Chile.

      Please note that the newly enacted Chilean insolvency laws, effective from October 2014, allows for debtor protection during period of time, so the debtor will not be forced into liquidation until that period 

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      Liens on tangible property (eg, mortgages and pledges) are enforceable through the accelerated debt collection process that, compared to the ordinary debt collection process, is considerable faster, taking one to three years for a full execution.

      In order to make a valid and perfected security interest and to enforce it against the debtor and any third party through the aforementioned accelerated debt collection process, those securities shall granted by public deed before a Chilean public notary.

      Then, if the security refers to a real estate property, the public deed must be registered at the Real Estate Registry, according to its location. The date of registration in this registry determines the order in which mortgages shall be paid in the case of multiple mortgages upon a property.

      Concerning the possibility of creating a floating blanket lien, the situation is allowed only with regard to mortgages (Civil Code, article 2419). A mortgage upon all the debtor’s real estate properties (including those acquired after the closing date of the financing) allows the creditor to register them as the debtor acquires them.

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      Under general rules, creditors can freely waive their rights, provided this does not prejudice third party’s rights and it is not expressly prohibited by law. Hence, they may lawfully dispose of their security interest and liens, if chosen.

      Concerning insolvency, the trustee in liquidation must apply the funds available to pay the creditors in accordance with the applicable statutory priorities according to five categories of claim specifically listed in the Civil Code. However, Chilean law allows creditors in the fifth category to subordinate their claims and thus become junior to all other unsecured creditors in case of a general subordination, or to specific unsecured creditors in case of a limited or restricted subordination. Such subordination shall be followed by the trustee in liquidation when paying creditors, provided the agreement is executed in a proper form.

      Under the recently in force bankruptcy law (Law No. 20,720), effective in October 2014, the debtor and its creditors can enter into reorganisation agreements that can include remittance or rescheduling of loans, and any other licit object, in order to reorganise the debtor’s liabilities. In that regard, the parties can agree different agreements depending on the existence of security interests or not. Thus, the debtor can propose (and agree with its creditors) a solution in favour of secured creditors and others in favour of unsecured creditors. The new bankruptcy law also provides the possibility that the debtor and its creditors enter into off-court reorganisation agreements, which, subject to some legal requirements, and once approved by the court and by the creditors in a meeting summoned by the court, will have the same effects as in-court reorganisation agreements.

      Finally, the new bankruptcy law authorises the creditors in a liquidation proceeding to agree different asset liquidation measures, which will not be subject to the debtor’s approval. 

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      The bankruptcy law provides different treatment between third-party loans and those granted by related parties to the debtor.

      Special Subordination

      Loans owed to related parties must be properly documented 90 days prior to the commencement of a reorganisation or liquidation proceeding. If not, they will be postponed and be deemed junior to the rest of the debtor’s liabilities, thus being paid only after those debts are fully paid. Moreover, in the case of reorganisation, some related parties loans, although duly documented, can also be postponed if that is requested by the trustee in charge of the reorganisation proceeding.

      Voting Rights

      Related parties do not have voting rights in reorganisation or liquidation proceedings, accordingly, their loans are not considered when assessing the debtor’s liabilities.

      Other payments

      Unless authorised by the debtor’s creditors, if a reorganisation agreement is in force, the debtor cannot distribute incomes to his or her shareholders, directly or indirectly, by way of an equity reduction, loans remittance and/or revenue distribution, until all creditors covered by the agreement are fully paid.

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      Mortgages entered into financial institutions and consumers

      Since 2011, the creation of a floating blanket upon new mortgage loans, requires the previous written application of the debtor, when the latter can be deemed as consumer pursuant to the Chilean Consumer Protection Law (Law No. 19,496).

      ClawBack Period

      Chilean bankruptcy law establishes a hardening or “clawback” period. However the scope of such rules depend on the applicable bankruptcy law.

      The old Chilean bankruptcy law established hardening period rules which entitled to the bankruptcy trustee and the remaining creditors to challenge some operations entered into during the hardening/claw-back period. Such hardening period extends, as a general rule, from ten days prior to the date determined by the court as the date of cessation of payments to the date of the bankruptcy declaration. The court can set “the date of cessation of payments” up to two years prior to the bankruptcy declaration.

      The general criterion set forth above has not been modified by the current bankruptcy law (Law No. 20,720) which provides for a hardening period which will extend, as a general rule, up to two years prior to the commencement of a liquidation or reorganisation proceeding. The legal length of the hardening period cannot be reduced.

      During that “clawback period” and pursuant to Law 20,720, the following transactions shall be ineffective in relation to the bankruptcy estate:

      (i) any anticipated payment made by the bankrupt debtor;

      (ii) any payment of a past due obligation that is not made in accordance with the originally agreed terms; and

      (iii) any security interests created to secure previously incurred obligations.

      In addition, the trustee in liquidation or reorganisation, or any creditor, may likewise challenge and ask the court to set aside payments not included in (i) or (ii) above, as well as transactions for value, made or entered into in the two years period prior to the commencement of a liquidation or reorganisation proceeding, and the claimant must prove that the creditor knew about the deficient situation of the debtor’s state and that the transaction affected the rights of the remaining creditors or their equal standing before the debtor’s estate.

      International Insolvency Rules

      Pursuant to Law No. 20,720, in principle, foreign debtors are not subject to the new Chilean bankruptcy law, however it provides that, a bankruptcy proceeding commenced abroad can be recognised by Chilean courts, thus affecting creditors’ rights over assets located in Chile. In this regard, if a foreign bankruptcy trustee (or whoever, pursuant to the foreign law, is in charge of managing the relevant insolvency proceeding) requests such recognition to a Chilean court, he also will be entitled to request the suspension of enforcement proceedings over assets located in Chile. Later, if the foreign bankruptcy proceeding is finally recognised by a Chilean court, the enforcement of the assets, whether commenced or not, will be suspended. Moreover, if recognised, the foreign trustee can request additional measures, such as being authorized to sell the assets of the foreign debtor that may be located in Chile.

      Furthermore, if the foreign insolvency proceeding is recognised by Chilean courts, an insolvency proceeding subject to Law 20,720 may be commenced against the debtor but only in connection with its assets located in Chile.

      Finally, if the foreign insolvency proceeding is recognised by Chilean courts, the foreign trustee will be entitled to file claims under the rules established by Law No. 20,720 regarding the hardening period.

      Set-off

      Under the Chilean Bankruptcy Act, the operation of set-off of the obligations of the bankrupt following the bankruptcy declaration is not permitted.

      Nevertheless, netting is allowed if it refers to reciprocal and “connected obligations” of the parties that arise from the same agreement or negotiation, even if they accrue at different times.

      For such purposes, obligations that arise from derivative transactions, such as futures, options, swaps, forwards or other derivative instruments or contracts, entered into between the same parties in one or more moments in time, subject to Chilean or foreign law, under the same master agreement recognised by the Central Bank that contains a set-off clause in case of bankruptcy, will be deemed “connected obligations”, even if such obligations are in different currencies. In such case, once the bankruptcy is declared, all the obligations arising from derivatives entered into under such master agreement will be set-off and the net amount will be deemed as a credit against or in favour of the bankrupt, as the case may be. In this case, (i) if the credit is against the bankrupt, it shall be collected through the bankruptcy court according to the general bankruptcy proceeding; or (ii) if the credit is in favour of the bankrupt, it shall be collected directly by the bankruptcy trustee.

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

    • Chile

      It will depend on the economic cycle. After having an average GDP increase of 5.4 per cent between 2010 and 2013, the Chilean GDP slowed down to 1.9 per cent in 2014, and this year is expected to have a GDP increase of around 2.7 per cent. In addition, long-term interest rates are growing and the Chilean peso is experiencing a depreciation against the US currency, which may make loans more expensive. Chile is not immune to the retreat of foreign investors from emerging markets and to the decrease of the price of commodities, copper being a large part of its exports. A tax reform recently approved increased corporate taxes from 20 per cent to 25 per cent, or 27 per cent depending on the case, which may also affect the appetite for acquisitions. However, since Chile is an open economy with a reputation of abiding by the rule of law, we foresee that long-term safe investments will continue flowing into the country. Some areas where it is expected that acquisitions will be active are the salmon industry (Chile being one of the largest salmon producers in the world); the infrastructure concession companies, where pension funds and other investors are acquiring concession companies operating toll roads or airports from construction groups that need liquidity to afford other projects in Chile and elsewhere in Latin America; and, possibly, energy, where due to the current deficit in power generation some foreign groups may become interested in acquiring companies in Chile that may not have the financial muscle to enter into new projects.

      Answer contributed by Antonio Morales , Pedro Garcia M from Morales & Besa

      Last verified on Thursday 9th March 2017

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